How to trade the Doji Candlestick Pattern? A Comprehensive Guide

The Doji Candlestick Pattern: A Guide to Market Indecision

If you’ve ever looked at a candlestick chart and noticed a tiny-bodied candle with long or small shadows on both ends, you’ve likely come across a Doji candlestick. But what does it really mean? Is it just another candle, or does it carry a deeper message about the market’s behaviour?

Well, the Doji candlestick is more than just a small-bodied candle—it’s a signal of indecision, a moment where buyers and sellers are locked in a battle, with neither side gaining the upper hand. Whether you’re a beginner trying to understand candlestick patterns or a seasoned trader looking for a deeper insight into market structure, understanding the Doji candlestick is crucial.

So, let’s break it down step by step.

What is a Doji Candlestick Pattern?

Imagine a trading session where the price moves up, then down, and back up again—but by the time the session ends, the opening and closing prices are almost the same. The result? A Doji candlestick.

The Doji forms when neither the bulls (buyers) nor the bears (sellers) can establish dominance, leading to a candle with little or no real body. Even though price fluctuates throughout the session, the fact that it closes near its opening price indicates uncertainty in the market.

Now, does this mean the trend is about to reverse? Or is it just a pause before the market continues in the same direction? That depends on where the Doji appears in the trend and the context surrounding it.

How to Identify a Doji Candlestick? A Simple Five-Point Checklist

Spotting a Doji candlestick is relatively simple, but not every small-bodied candle qualifies as one. So, how can, you be sure? Here’s a five-step checklist to confirm whether the candle you’re looking at is truly a Doji:

1. Minimal or No Real Body – The open and close prices are nearly identical, forming a very small or non-existent real body.
2. Long or Short Shadows (Wicks) – The upper and lower wicks indicate how much price moved during the session, even though it eventually closed near the open.
3. Position Within the Trend – The meaning of a Doji changes depending on where it appears: uptrend, downtrend, or sideways movement.
4. Volume Consideration – If the Doji forms with high volume, it may indicate institutional participation, making it more significant.
5. The Color Doesn’t Matter – Unlike other candlestick patterns, the color of a Doji (whether it’s green or red) is irrelevant. What matters is its overall structure.

So, the next time you see a small-bodied candle, run through this checklist before making a decision!

What Does a Doji Candlestick Indicate in the Stock Market?

Price Action: A Sign of Indecision

Now that we know how to identify a Doji, let’s talk about what it actually means in the stock market.

To better understand this, let’s analyze a real market scenario. Below is a 15-minute chart where a perfect Doji Candlestick Pattern has formed at 14:00 hrs.

But what happens when we zoom into a lower time frame, such as the 1-minute chart? The same Doji candle now reveals its internal structure—showing the battle between buyers and sellers in greater detail. This perspective will help you to grasp the underlying price action that led to the formation of the Doji.

1. It’s a Sign of Indecision

The Doji tells us that neither buyers nor sellers have full control over the market. It represents a pause—almost like a deep breath before the market makes its next move.

However, spotting a Doji alone isn’t enough. To trade it effectively, we must combine it with Volume Price Analysis (VPA), which helps us determine whether smart money (institutional investors) is actively participating in the session.

2. It Can Signal a Reversal or Continuation

Depending on its position in a trend, a Doji can either indicate:

• A potential trend reversal (if it appears at the end of an uptrend or downtrend).
• A temporary pause before the trend continues (if it appears within an existing trend).

To confirm whether the market will reverse or continue, traders need to analyze subsequent price action and volume.

Different Types of Doji Candlesticks Pattern

Not all Doji candles look the same. Traders and analysts classify them based on their structure and closing positions.

Traditional Doji Types:

1. Gravestone Doji – Open, low, and close are nearly the same at the bottom of the candle, with a long upper wick.
2. Dragonfly Doji – Open, high, and close are nearly the same at the top of the candle, with a long lower wick.
3. Neutral Doji – Open and close are centered within the high-low range, with wicks on both ends.

But let me introduce you to my personal approach.

My Preferred Doji Candlestick Pattern Classification:

Instead of using the traditional names, I prefer to categorize Doji candles into two primary types based on Volume Price Analysis (VPA):

1. Small Doji – A compact Doji where the open and close are in the middle of the candle range, indicating minor price movement.
2. Long-Legged Doji – A Doji with extended wicks, reflecting high volatility before closing in the middle of the range.

Now, here’s an important distinction I make in my analysis:

• A candle is only a Doji if its closing position is in the middle of its range.
• If the close is at the top or bottom, it could resemble another pattern (Hammer, Shooting Star, Hanging Man, or Inverted Hammer).

Why is this important? Because misidentifying a Doji can lead to false signals and poor trading decisions.

The Psychology Behind the Doji Candlestick Pattern

At its core, a Doji represents market psychology—it tells us that traders are uncertain about the next move.

Let’s break this down:

In an Uptrend: A Doji may indicate that buyers are losing momentum. But is this a sign of a reversal? Not necessarily. We need further confirmation through volume and price action.

In a Downtrend: A Doji can suggest that sellers are exhausted. Again, a reversal is possible, but we must analyze volume and subsequent candles before making a decision.

In a Consolidation Phase: When a Doji appears in a sideways market, it could mean an impending breakout. But in which direction? That’s where additional indicators come into play.

Does the Color of a Doji Matter?

This is one of the most common questions traders ask:

“Does it matter if a Doji is green or red?”

The simple answer: No.

Unlike other candlestick patterns, the color of a Doji is irrelevant because its open and close prices are almost identical. Instead, focus on:

• The length of the wicks (longer wicks = greater price movement).
• The Doji’s position within the trend (uptrend, downtrend, or consolidation).
• The trading volume (higher volume = signal of smart money participation).

How to Use Doji Candlesticks Pattern in Technical Analysis

The Doji candlestick is a valuable pattern, but it should never be used in isolation. Whenever a Doji appears on chart I look for only two things: First is size of the Doji Candle & second is Volume associated with it. If both the size and volume of Doji candle is low I simple ignore this candle and it becomes irrelevant to me.

To maximize effectiveness of a Doji candle (with large size and high volume), keep these key factors in mind:

• Always wait for confirmation from subsequent price action.
• Consider volume analysis to check for institutional involvement.
• Use the Doji pattern in combination with broader market context.

By understanding when and how to trade the Doji candlestick, you can enhance your market analysis and make smarter trading decisions.

So, the next time you see a Doji, don’t just glance at it—analyze it. Ask yourself:

• Where is it appearing in the trend?
• Is there strong volume behind it?
• What do the surrounding candles suggest?

Trading is all about reading the market’s language, and the Doji is one of the most important words in that language. Master it, and you’ll have a powerful tool in your trading arsenal.

Now, are you ready to spot your next Doji with different lenses?

In the next article, I will discuss my favorite long-legged Doji candlestick pattern trading strategy with Volume Price Analysis.

Note: This article is part of Tradonomics’ Smart Money Secrets with Volume Price Analysis series. Explore it to unlock powerful trading insights and master Volume Price Action!